It was Abigail Adams who wrote the words of my title to her husband John Adams in a letter dated March 31, 1776. She also wrote in that same letter “I am more and more convinced that man is a dangerous creature; and that power, whether vested in many or a few, is ever grasping, and like the grave, cries, “Give, give!” Apparently the English historian Lord Acton concurred when he wrote in a letter to a colleague in 1887 “Power tends to corrupt, and absolute power corrupts absolutely.” All of written human history boils over with our obsession for power over our fellow humans. It surfaces in every organized human endeavor, from who will lead a Boy Scout troop, to the high handed behavior of the President of a small Homeowners Association, to sports and business competitions, and most obviously, to the naked desire for political power. The motivations may vary: a love of indolence; a desire to outshine others in our pack or tribe; an expression of envy of the position, respect, obedience, or reverence another may receive; a desire to compensate for low self-esteem and personal inadequacies; a desire for access to unearned wealth and deference and the trappings of power; a sense of duty; or an ideological certainty that we personally are better equipped to tell others how to live their lives. We behave as pack animals do, and in every society known to history, humans have been preoccupied with their status within their group. In many cases it is nothing more than mating behavior, a desire to win the best available mate. In every society we develop totems to publicize our status and power. A beautiful, striking, or powerful mate enhances our standing within the tribe. Think about it: what is the first thing every celebrity or drug lord looks for? A trophy mate. On the other hand, many of the conflicts endemic to the smallest group known to civilized society, the married couple, often devolve around the sharing of power. The moral of all power seeking is that it is easier to obtain than to keep, and that all power is constantly in flux and eventually fades.
Even cows going out to pasture have a queen, who routinely leads the way out and back each day. And when an up-and-coming cow displaces the queen of the herd, the queen becomes neurotic and often stops giving milk.
During the Ottoman Empire, so paranoid were the sultans about retaining their power that immediately upon their ascendancy to the top position of power, they ordered the massacre of all their brothers and half-brothers, who were the most likely future threats to the new Sultan.
In today’s world of business, the greatest challenge to the young and bright MBA coming out of the gate is going to be his immediate supervisor in the corporate world. Why? Because that individual, with his small level of power, will feel threatened by the newcomer and move to protect his “domain”. The term “office politics” is so common as to be cliched. For simplicity’s sake I have used the male gender in this paragraph, but there is no biological reason to believe that female behavior in similar contexts would be any different than a man’s. Almost all species show a remarkable focus on power and territory. It is about survival, control of resources, mating advantages, and status in the herd.
What has this got to do with financial literacy, dear Reader? One of the greatest forms of power is the Power of the Purse. Ultimately, all politics works to the end of controlling the economy. And what is an economy, if not the trade of what one person produces with another? So he who controls the economy controls the productive effort of the slaves, uh, I mean, citizens. Free trade is voluntary, and power is not an issue. When what one person produces is controlled, regulated, and redistributed by another, without their consent, it is called coercion and confiscation. Democracy, without protection of individual rights, is nothing more than a fancy word for mob rule. The great achievement of the U.S. Constitution was that it guaranteed the freedom of anyone we don’t agree with, don’t like, envy, or whose property we covet. In protecting the smallest minority in existence, the individual, the Constitution protected everyone. For the last 100 years that Constitution has been under political assault so that the social engineers and political activists can finally “fix” everything that is wrong with the world we live in–according to them. Also during this last 100 years over 100,000,000 people have been slaughtered in the most organized, systematic way in the name of imposing a better world order–on people who disagree. This concatenation of circumstances is no accident of history. The vast majority of the mass murdering has been done in the name of socialism, whether of the national socialism of the Nazi’s or the socialism of the Communists, or the socialism of Social Democrats; there is creeping socialism brought about by peaceful measures and democratic processes, and there is socialism brought about by armed revolutions and brutality. There is socialism that is brought about by wage and price controls, and there is socialism that is brought about by the nationalization of industry. What is this monster, and why is it dangerous? Socialism is the government ownership of the means of production. That’s it? That doesn’t sound very sinister, does it? Or does it?
Our survival is not given to us by instinct. We survive by the application of our minds to survival issues. We eliminate disease by identifying its causes and discovering cures. We deal with drought by developing irrigation systems and dams. We make our world and work easier by harnessing energy from fossil fuels, water, nuclear fission, the wind and solar power. The use of our mind is our means of survival, and he who controls the disposition of the product of our mind, he who confiscates the product of our mind, asserts the moral right to our life also because there is no freedom without economic freedom. Socialism says the State has the moral right to own and control the means of production. You will understand what this means more fully as we proceed. The critics of socialism have always attacked its inevitable failures at central planning. This author attacks socialism from a moral perspective as well. I do not believe the State owns you. I believe the purpose of the State is to defend you from attack from outside, and from inside, and to protect free trade. The rest is up to you. No one gets something for nothing. The Statists are constantly fiddling with the mechanism of central planning, and their own criticisms of previous failures at socialism have been directed at the wrong methods used, not the wrongness of the concept itself. But as Ayn Rand once said about the game of redistribution ‘When you legislate free milk for everyone, you have just enslaved the milkman.’
First of all, let’s make it clear that “free trade” is an unknown ideal and has never been practiced in this country or any other. At no time has voluntary trade between parties, whether individuals, companies, organizations, or countries, been devoid or unhampered by political intrigue and coercion. The titans of early American industry can be roughly divided between political entrepreneurs and market entrepreneurs. As children we were all taught how Robert Fulton built and operated the first steamboat in New York State. We were not taught, however, that Fulton had a government-granted 30-year monopoly on all steamboat traffic in the entire state. For sixty days in 1817 Cornelius Vanderbilt defied the law and evaded capture by the government as he ran steamboat traffic from Elizabeth, NJ to New York City. In 1824 Chief Justice John Marshall and the Supreme Court struck down Fulton’s monopoly. About 1830 Vanderbilt decided to compete against the Hudson River Steamboat Association, who had effectively engaged in price fixing at $3 for the run from NYC up the Hudson to Albany. Vanderbilt with his own ships cut the fare from $3 to $1 to ten cents and finally to nothing. His method? He figured out it cost him $200 per day to run a ship, and if he provided food and drink to his passengers for $2 each, with 100 passengers he was at breakeven or better. He was a pioneer of marine concession stands. The Associations response? They bought him out. Now see if you can figure out who the political entrepreneurs were, and who the market entrepreneurs were. If this happened today, the political entrepreneurs would be howling “Foul! Predatory pricing!!” and running to their Congressman. As a matter of history, after the Association bought out Vanderbilt, they raised the price back to $3. Five or six more steamboaters opened up shop, because they saw the handsome profit Vanderbilt made from the sale of his enterprise. Each of them lowered the price of the fare again, and each of them in turn was bought out by the Association. The entrepreneurs made money, and the public benefitted by the ongoing fare war!
The same is largely true today, and the real market entrepreneurs believe, or at least hope, to overcome the confiscatory tax practices and interference by the State by means of their own ingenuity and the productivity of their enterprises. And in fact the State is counting on their doing exactly that, for were it not for these producers, there would be nothing to expropriate and redistribute. Wealth has to be created by the Creators so that it can be redistributed by the machinery of the State. The fact that we relabel this expropriation of private property in the name of democracy doesn’t change the reality of what is happening. A thing is what it is. So let’s practice the fine art of identification for a moment. What has everyone learned under our system? That in a democracy, especially in one that has eroded the protections afforded by its Constitution, the voters have the power to vote to themselves the property or earnings of their neighbor. What results can you expect? Long lines of people with their hand out. Some want money, some have pet peeves, pet charities, and others have beliefs! And everyone has needs! The mob now rules! How? By organizing, raising money, hiring their political lobbyist, their man in Washington. Money talks, and everything else walks. When there’s free milk, everyone’s thirsty. And where does the money go? It goes into the reelection funds of the encumbent politicians. In effect, what have the contributions of the mob purchased? They have purchased influence. How is this any different than the medieval Catholic Church selling indulgences (the purchase of Church prayers to ease those in Purgatory into Heaven)?
The most insidious part of the entire process is that it actually changes the mentality of the herd. Greed feeds on itself, even at the most petty level, and people come to feel entitled to what once was a temporary support mechanism. And politicians, to be reelected, must continually up the ante, and deliver more and more goodies. The monster they have created must now be fed. Have you been following the news in California lately? The eighth largest economy in the world is broke, and is paying its employees and vendors with IOUs. Do you realize what they have done? They have created a brand new kind of fiat money, paper money. It doesn’t have the Federal Reserve behind it, which is unfortunate, because the feds would just print the money. Now at least two of the major banks, Wells Fargo and Bank of America, have decided not to honor this new currency. What do you do with a paper IOU from the State of California that won’t buy you a loaf of bread? How did this happen? The State spent $26 billion more than they brought in. Instead of biting the bullet, facing the voters, and shutting down all but essential services until they were solvent again, they did the next thing they could short of printing money. Actually, they DID print money–and called them IOUs!
One of the salient features of socialism, or gaining State control of the means of production, is outright nationalization of industry. Obviously all governments need a pretext for doing this, and the pretext is always a crisis, and the seizure of private property is always nuanced in soothing terms such as ‘temporary’, ‘for the greatest good’, ‘it had to be done’, or best of all, it now belongs to the taxpayer. Oh, the State expropriated private property in your and my name and that makes it morally justifiable! Now can anyone remember when we might have had such a situation in recent memory? How about last year and this year, for example? We now talk about Government Motors. Folks, surely you don’t think they were talking about you, do you?? That domestic industry was just nationalized, dear people. Now let’s analyze. How often in your lifetime have you heard of a government, national, state, or local, making believable budget forecasts? How about your government running a profit? How about your government returning a dividend to its taxpayers (without printing money to do it)? If the definition of insanity is to keep doing the same thing but expect different results, we are looking at the insanity of the herd at this point in time! Are we really expecting a federal government that has run $1.1trillion over budget since last October to run efficient automobile manufacturing companies? What’s going to be different? And if the government compensates for failing to make a profit and then prints more money to mask the losses, how does that improve the economy? How is that fair competition for those other privately owned companies who can’t print money?
The government partially nationalized some of the banks also, but who are we trying to kid? The big banks have been a part of the government for a very long time now.
Margaret Thatcher once said, “The problem with socialism is that you eventually run out of other people’s money.” On Monday the Financial Times reported that the Democrats in the House are considering an additional tax of 1% on taxpayers who earn more than $350,000 per year. If you are making less than that, you probably feel quite gratified at your success at picking someone’s pocket above you on the socio-economic scales. Until you think about it. Apart from the moral issue, which is a big one, of how does anyone acquire the right to expropriate someone else’s property with the blessing of the law, there is the question of what would have happened to that money if it had been left to its proper owners? Most likely it would have been invested back into the capital formation of the economy (more about that later). Then there is the matter of the exit migration of wealthy people and their money. Believe it or not, people like to keep what they have earned, and they will usually act to protect their property. One way to do this is to move, either themselves, or their resources, to another location, state, or country with greater tax advantages. One of the first discernible evidences of socialism in practice is government imposed restrictions on migration OUT. The citizens have become prisoners, and their government becomes their jailer. In the early 80’s I met in Montreal with a group of French businessmen from Paris. They were in a hurry to buy businesses in North America. Their President Giscard d’Estaing, had imposed such high taxes on business in France, that anyone with any get up and go was getting up and going! There was a massive outflow of capital from France because people, all people, like to keep what they have earned. When the capital leaves, the jobs leave, the profits leave. All that’s eventually left are the leaves, when the economy falls.
Okay, that’s a bit of the big picture. We all know enough at this point to make a fool of ourselves down at the corner bar. So let’s get serious, and let’s get financially literate. In the next few articles we are going to take one subject at a time, starting with money itself. I promise you, you will be amazed. Bring your Excedrin; we are going to learn some new vocabulary.
Thanks for stopping by. Don’t forget to subscribe on the right side of this page, near the top. Stay tuned. John Bechtel